India’s food subsidy program, WTO and the controversy

India's tough stand on Thursday blocked world trade treaty, the first global trade reform since creation of the World Trade Organisation (WTO) 19 years ago. But, taking into account the domestic compulsions and danger of breaching the subsidy cap for wheat and rice, India's stand is justified.

India's concern:

India, which has been asserting that it has the right to retain higher stock holding of food grains, demanded more freedom to subsidise and stockpile food grains than is allowed by WTO rules.

It is of the view that without a permanent solution on food subsidies, its public stockholding programes will be obstructed by the WTO rules.

Also, India is insisting upon change in the method of calculating the legally permissible subsidy. It cannot be based on prices that prevailed in 1986-88. This will affect India's food security programme and food grain procurement through minimum support prices (MSP).

The MSP policy is aimed at engaging the poor farmers in cultivation and if questions are raised against it, the livelihood of half of India's population will come in danger.

India wants the base of calculating food subsidies updated to current price levels, taking into account inflation and currency movements. Otherwise, the Government will not be able to provide subsidised food per Food Security Law.

What is India's Food Subsidy Program?

India has a food subsidy program that stockpiles grain for the poor.

India's rice stockpile is estimated at 21.2 million tonnes as of July 1 while wheat reserves were at 39.8 million tonnes.

India, world second largest consumer of rice and wheat has been annually spending 900 billion to 1 trillion rupees or procurement of grains from farmers every year.

According to Food Security Act, 2013, India provides subsidised food grains to two thirds of its 1.2 billion people.

According to the Act, beneficiaries are able to purchase 5 kilograms per eligible person per month of cereals i.e, rice at Rs 3 per kg while wheat at Rs 2 per kg.

In case of non-supply of food grains, the State Governments have to provide a food security allowance to the beneficiaries.

The subsidy data, due to be released by Government in next few weeks, will reveal that subsidy on rice was over 9 per cent of the value of production in 2011, while it would be slightly lower in case of wheat.